All 23 Cash Application questions
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Accounts Payable & Receivable › Cash Application

How are early-payment (settlement) discounts taken by customers recorded?

Intermediate

Answer

When a customer pays early and deducts an agreed settlement discount, apply the cash received and record the discount as a reduction of revenue (sales discount) or expense, clearing the invoice in full. The discount is the difference between the invoice and the cash received under the agreed terms.
Invoice 1,000, 2% settlement discount taken, cash 980:
  Dr Bank 980  Dr Sales Discounts 20  Cr AR 1,000
Real-world example A customer pays a $1,000 invoice at $980 under 2/10 terms; AR clears fully and the $20 discount is booked.

Common follow-ups: Where is a sales discount recorded? | How does it clear the invoice fully?

Credit Control Reconciliations Cash Application
All 23 Cash Application questions